Khyati Dharamsi

Mumbai: Are you thinking of taking a twowheeler loan? Chances are you will have a tough time getting it.

Even if you are ready to pay the higher down payment that banks charge these days, the interest rate will still be on the higher side.

In fact, the interest rate has gone up across the banking spectrum (See table above).

State Bank of India (SBI), for example, has increased it by 0.5%.

“SBI has increased rate by 0.5% since February 27, 2008. The increase is post a festival offer that provided loans at 15%, with a down payment of 10% between October 2007 and mid-February 2008. Now, the down payment has also been increased to 15%,” an SBI official said on condition he be not named.

According to Ravi Narayanan, head of auto loans, ICICI Bank, “The interest rates have been increased because, overall, the cost at which we borrow money has increased. The cost incurred on recovering money and the followups, too, have gone up.”

Down payments, in some cases, have increased to as high as 30% of the two-wheeler cost.

As if increasing interest rates and down payments are not enough, some private-sector banks and non-banking finance corporations (NBFCs) have stopped two-wheeler loans completely in some locations.

Citi Financial, one of the bigger players in this business, has stopped giving two-wheeler loans since March 1, 2008.

Sources also indicate that Centurion Bank of Punjab is going slow on the two-wheeler loan business. An official from a private bank did admit it.

“For namesake, most banks continue to have the two-wheeler loan product, but when it comes to actual lending, not many do it,” he said.

Increasing interest rates have led to defaults on existing loans. “Defaults increased due to the double whammy of high interest rates and fall in second-hand asset prices. Banks withdrew as default rates touched 3-4%. They also increased down payment to 30%,” Deepak Jain, analyst, institutional equities, Anand Rathi, wrote in a recent report on the auto sector.

“Defaults in the two-wheeler segment have shot up to 5% of the total two- wheeler loans now, from 2% a year ago. In areas such as UP and Andhra Pradesh, bad loans were 8-10% and banks closed their loan counters,” said an auto analyst from a leading brokerage.

“The huge defaults were a result of aggressive product roll-out by manufacturers. As new models were being rolled out, people wanted to sell older versions within six months and buy newer ones. As the second-hand value was not too high, they decided to default on payments. Lot of people did not repay even though they had the ability to pay,” he said.

Most public-sector banks continue to be in the business, but there are numerous procedural hassles.

Others have become more careful about who they are lending to.

“Though we haven’t changed our margins,we have become stricter in terms of geographies that we are lending in.We have restricted offering two-wheeler loans to low income groups,” says Narayanan of ICICI Bank.

An increase in margin and interest rate, as well as selective lending, has eroded two-wheeler demand.

“The demand for two-wheeler loans, too, has come down. Earlier, 50% of customers used to buy two-wheeler in cash. Now, the number has shot up to 55%. Defaults are not too high,” says Narayanan.

All this is having an impact on the demand for two-wheelers. “The impact would be the highest in the rural markets, especially the entry-level two-wheelers (100 CC) and, to some extent, the executive level (up to 120 CC). The premium segment twowheelers would not be hit, but the volumes here are not too high. Even if the interest rates are reduced by 100-200 basis points, banks still have to solve the non performing assets problem. Until it’s down to at least 2.5%, they will not increase their exposure,” said the auto analyst.

Source : DNA